Tax Blawg

Introduction

Welcome toTaxBlawg, a resource for news and analysis of current legal issues facing tax practitioners. Although blawg.com identifies nearly 1,400 active “blawgs,” including 20+ blawgs related to taxation and estate planning, the needs of tax professionals have received surprisingly little attention. TheWall Street Journal's Tax Bloggives “tips and advice for filers,” and Paul Caron’s legendaryTaxProf Blog is an excellent clearinghouse for academic and policy-oriented news. Yet, tax practitioners still lack a dedicated resource to call their own. For those intrepid souls, we offerTaxBlawg, a forum of tax talk for tax pros.

When battling the IRS, knowledge is power. Nowhere is this more true than in worker-classification cases, where the IRS often seems hell-bent on treating all workers as employees, regardless of the facts. One bright spot for taxpayers under IRS scrutiny is an obscure provision, commonly known as Section 530, that grants taxpayers a brand of “civil immunity” if they meet three criteria. One requirement is that taxpayers file Forms 1099 (Miscellaneous Income) for all workers considered to be independent contractors.

Whether a worker is performing services as an employee or as an independent contractor depends on the facts and circumstances. This determination may be difficult for many companies and may lead to significant exposure. In order to facilitate voluntary resolution of potential worker classification issues and achieve the benefits of increased tax compliance and certainty for all parties, taxpayers, workers and the government, the IRS established the Voluntary Classification Settlement Program (“(VCSP”) on ...

Despite the recent increase in online commerce, traditional methods of moving product, such as so-called “direct selling,” are alive and well. Indeed, according to a recent IRS study, direct selling is a significant industry, with annual sales of nearly $30 billion and more than 13 million salespersons in the United States alone. The IRS has intensified worker-classification audits over the past few years, generally claiming that workers should be treated as employees instead of independent contractors. Theoretically, these audits should cause little concern for direct ...

The difference between what taxpayers should pay and what they actually pay the IRS is called the “tax gap.” A significant portion of the tax gap is attributable to non-compliance with employment tax laws, including worker misclassification. The IRS is currently conducting a three-year research project, which entails an additional 6,000 random employment tax audits. This research will inevitably lead to the conclusion that worker misclassification is rampant and depriving the federal government of billions of dollars in tax revenues each year. Therefore, the IRS likely ...

On September 21, 2011, the IRS announced the launching of the Voluntary Classification Settlement Program. This program will provide employers with the ability to resolve past worker classification issues and achieve certainty under the tax law at a significantly reduced employment tax rate by voluntarily reclassifying their workers. Under the program, eligible employers can obtain substantial relief from federal payroll taxes owed for misclassification in the past, if they agree to prospectively treat workers as employees. In exchange, the employer will pay 10 % of the ...

On September 19, 2011, Commissioner Shulman and Secretary of Labor Solis signed a memorandum of understanding that will allow for the sharing of information intended to combat employee misclassification. The sharing of information and collaboration between the two agencies is intended to help reduce the incidence of misclassification, reduce the tax gap, and improve compliance with federal tax and labor laws. The increased collaboration will also strengthen the relationship between the IRS and DOL, enable both agencies to leverage existing resources and send a consistent ...

According to the Department of Homeland Security, the federal government has started its crackdown on businesses suspected of hiring illegal immigrants. Federal agents are expected to visit companies to verify employees' identity and eligibility for employment in the United States. Documentation, such as Forms I-9 will be reviewed.

ICE is not expected to name the companies listed in its audit plans but may identify the specific sectors that will be targeted.

Companies should manage these audits carefully because there is a significant potential for the findings to result in ...

The IRS National Employment Tax Research Project has started. On November 9, 2009 the IRS announced its first employment tax research project in 25 years. Under the program, which will last from 2010 through 2012, the IRS will audit 6,000 employers randomly selected from all employment tax filers. It is our understanding that the initial letters for the first 2000 employees selected to be part of the study have gone out and the audits will commence in May, 2010. The IRS will focus on historic areas of non-compliance including (i) the misclassification of employees as independent ...

Let's face it: employees are wonderful. We couldn't do without them. However, they can be expensive. Beyond their base compensation, employers must pay federal taxes – in addition to withholding the employee's share of income tax, FICA and Medicare, there is an employer’s share of Medicare and FICA that must deposited regularly. There's also annual FUTA tax, as well as quarterly state unemployment tax. And there are benefits, ranging from medical coverage, to vacations, to sick leave, to name just three, that employers must pay.